Correlation Between Arista Networks and NEW WORLD

Can any of the company-specific risk be diversified away by investing in both Arista Networks and NEW WORLD at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Arista Networks and NEW WORLD into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arista Networks and NEW WORLD DEVCO, you can compare the effects of market volatilities on Arista Networks and NEW WORLD and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Arista Networks with a short position of NEW WORLD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arista Networks and NEW WORLD.

Diversification Opportunities for Arista Networks and NEW WORLD

-0.52

Correlation Coefficient

Arista Networks  NEW WORLD

Excellent diversification

The 3 months correlation between Arista and NEW is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Arista Networks and NEW WORLD DEVCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEW WORLD DEVCO and Arista Networks is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Arista Networks are associated (or correlated) with NEW WORLD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEW WORLD DEVCO has no effect on the direction of Arista Networks i.e., Arista Networks and NEW WORLD go up and down completely randomly.

Pair Corralation between Arista Networks and NEW WORLD

Assuming the 90 days horizon Arista Networks is expected to generate 1.09 times more return on investment than NEW WORLD. However, Arista Networks is 1.09 times more volatile than NEW WORLD DEVCO. It trades about 0.34 of its potential returns per unit of risk. NEW WORLD DEVCO is currently generating about -0.9 per unit of risk. If you would invest  10,092  in Arista Networks on October 10, 2024 and sell it today you would earn a total of  1,340  from holding Arista Networks or generate 13.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.44%
Values	Daily Returns

Arista Networks  vs.  NEW WORLD DEVCO

Arista Networks

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Arista Networks are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Arista Networks reported solid returns over the last few months and may actually be approaching a breakup point.

NEW WORLD DEVCO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NEW WORLD DEVCO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Arista Networks and NEW WORLD

The main advantage of trading using opposite Arista Networks and NEW WORLD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arista Networks position performs unexpectedly, NEW WORLD can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in NEW WORLD will offset losses from the drop in NEW WORLD's long position.

The idea behind Arista Networks and NEW WORLD DEVCO pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.